Two-star and above hotels to get tax sops

The star category hotels received a boost from the Budget, which proposes investment-linked tax incentives for properties which start functioning after April.

"In view of the high employment potential of the sector, it is proposed to provide investment-linked incentives to the hotel sector, irrespective of the location, under section 35AD of the Income tax Act," Memorandum to the Finance Bill 2010 said.

The investment-linked incentive allows 100 per cent tax deduction on any expenditure on capital (other than land), goodwill and financial instrument.

"It is now proposed to include the business of building and operating a new hotel of two-star or above category, anywhere in India," in the group of businesses eligible for investment-linked tax incentives, it said.

At present, the concession is available for setting up and operating cold-chains, agricultural warehouses and operating a cross-country pipeline network of natural gas, crude oil or petroleum oil.

Several hotels coming up in the National Capital in the run-up to the Commonwealth Games 2010 will start to gain from the new tax provision.

An analyst in the hospitality sector felt that the new tax provisions would help the industry achieve profitability at an early stage and boost room occupancy.

"A new hotel takes 5-6 years to become profitable. The extension of the scheme to this segment will mean a few years of no-tax payment for the them," Ernst & Young Partner Avinash Narvekar said.